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Analysis and Prediction:

Date of publication: December 03, 2018 | Author: Tim Clayton

Last Week’s Summary

World Economic News Review

US-China agree trade truce

At the G20 meetings in Argentina an important focus was the meeting between President Trump and Chinese President Xi.

The two sides agreed to suspend new trade tariffs for 90 days from January 1st in order to hold fresh talks. The agreement had an important impact in easing immediate fears surrounding trade tensions and there was a strong lift to risk appetite.


Minutes from November’s Federal Reserve policy meeting maintained strong expectations that the FOMC would raise rates at the December meeting with nearly all members calling for an increase fairly soon.

There was still a greater element of uncertainty surrounding 2019 with the committee set to monitor data releases very closely.

The speech from Fed Chair Powell reiterated the strong probability of an increase this month. Powell, however, also stated that rates were already just below a neutral rate. This remark suggested that there would be much greater caution in raising rates further. There was a shift in market expectations with futures indicating that there would be only one increase in 2019.

The dollar lost ground following Powell’s speech before recovering quickly with evidence of month-end structural support for the US currency.

US data registered a slight dip in consumer confidence while the goods trade deficit widened to a fresh record high. The PCE inflation measure targeted by the Federal Reserve declined slightly to 1.8% from 1.9% previously.


The Bank of England published its analysis of potential Brexit outcomes and the resilience of the banking sector. In the worst case scenario, the bank projected a deep recession in the event of disorderly a ‘no-deal exit with the potential for Sterling to decline 25%.

Prime Minister May attempted to gather support for the Brexit deal, but there was no evidence of a shift in parliamentary arithmetic ahead of the December 11th vote with a large number of Conservative MPs still indicating that they would reject the deal. The opposition labour Party also maintained strong opposition and stated that they would push for a vote of no confidence in the government.

Markets were focussed on the implications of defeat and potential developments including the possibility of a second referendum.

Housing data was slightly stronger than expected, although there was little market impact.


There German business confidence declined according to the latest survey, although there was some evidence of conditions starting to stabilise and unemployment continued to decline.

ECB members, including President Draghi, continued to voice doubts surrounding the growth outlook, although there were still expectations that bond-purchases would not be extended beyond the end of 2018.


Oil prices remained under pressure and decline to fresh 13-month lows with the WTI US benchmark dipping below the important $50 p/b level before a limited recovery. Low oil prices hampered the Canadian dollar.

Chinese PMI data was slightly weaker than consensus forecasts which maintained concerns surrounding an underlying slowdown in the economy, although the yuan gained ground after US-China trade tensions eased.

Next Week’s Forecast & Events

a Men Looking at Economic Forecast


There are important economic data releases during the week, culminating in the monthly employment report on Friday.

ISM manufacturing data is due on Monday with the services data on Wednesday with markets more sensitive to indicators given the comments from Fed Chair Powell.

The ADP employment data will be released on Wednesday ahead of Friday’s data. The main focus within Friday’s employment report will be on the hourly earnings component. A strong figure would increase expectations of stronger underlying inflation pressures and make it more difficult for the Fed to pause interest rate hikes.

Comments from Fed officials will be watched very closely as this will be the final opportunity to make remarks ahead the December policy meeting.

Importantly, Chair Powell is scheduled to testify to Congress on Wednesday with markets monitoring any shift in rhetoric compared with his recent speech.


The latest PMI manufacturing index will be released on Monday with construction and services-sector releases due over the following two days.

There will be expectations that business confidence will have been eroded by Brexit uncertainty and markets will, therefore, be expecting relatively weak releases and only very weak data would be likely to damage Sterling.

Political developments will remain very important for Sterling ahead of the expected parliamentary Brexit vote on December 11th.  Sterling volatility is likely to remain high with some UK currency support if momentum continues to build for a second referendum.


The Euro-zone data releases are unlikely to have a major impact, but any policy hints will be watched closely ahead of the ECB policy meeting the following week.


The Bank of Canada will announce its latest interest rate decision on Wednesday. Consensus forecasts are for rates to be held at 1.75%.

The Canadian employment data is also due on Friday following trade data on Thursday.

The Reserve Bank of Australia will announce its latest interest rate decision on Tuesday with market expectations of no change at 1.50%. Australian GDP data is due on Wednesday.

OPEC is due to hold its semi-annual ministerial meeting on Thursday and oil prices will remain an important focus after the recent slide in prices. If OPEC rhetoric fails to boost prices, there will be expectations of a decline in inflation expectations, lessening immediate pressure for higher interest rates.

Currency Forecast for Next Week

Currency pair Spot 1-week forecast 1-month forecast
EUR/USD 1.135 1.140 1.150
USD/JPY 113.6 113.0 111.7
EUR/GBP 0.890 0.895 0.880
GBP/EUR 1.124 1.117 1.136
GBP/USD 1.276 1.274 1.307
AUD/USD 0.738 0.745 0.750
USD/CAD 1.324 1.315 1.305
USD/SGD 1.369 1.365 1.359
USD/HKD 7.825 7.835 7.840
NZD/USD 0.692 0.700 0.710
GBP/JPY 144.9 143.9 145.9
GBP/AUD 1.729 1.710 1.742
GBP/NZD 1.845 1.820 1.841
GBP/SGD 1.747 1.739 1.776
GBP/HKD 9.985 9.980 10.24
GBP/CHF 1.274 1.274 1.307


 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 

Information expressed in this article and on as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.


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